The executives discussed the company's failure to comply with the EU's
decision from March 2004 to make its software work with competing products
and unbundle Windows Media Player from the operating system, Todd said in an
interview Wednesday.

Kroes told Ballmer the commission still expects Microsoft to implement the
EU decision as soon as possible. Todd said Microsoft isn't in compliance at
all at this point.

But Todd denied Kroes' order was an ultimatum.

"I wouldn't she say she gave him an ultimatum," Todd said. "They had a
discussion and she made her point of view very clear. As far as we're
concerned [Microsoft] has still not implemented the decision."

The meeting with Kroes came a week after Ballmer took the
stage at the Microsoft Management Summit in Las Vegas to discuss the
company's Dynamic Systems Initiative (DSI).

Ironically, Ballmer joked that he was happy to be at the this year's show:
He had missed the 2004 show because he was meeting with the EU's Mario Monti
to discuss the monopoly accusations.

Should Microsoft fail to meet the EU's clearly stated requests to deliver a
fully functional version of Windows without media player and open up its
software to work with rivals like RealNetworks and Apple, the company could
face a fine of as much as 5 percent of its daily revenue.

The issue is rooted in the EU's contention that Microsoft is abusing its
position in Europe, monopolizing the market by the very nature of its
entrenchment on computers from companies such as Dell, HP and IBM.

These companies sell their hardware with Microsoft's operating system, which
is also tied to other products, such as the Windows Media Player. Moreover,
the concern's software does not work with products from other vendors,
ostensibly locking them out of certain competitive situations with regard to
computing machines.

The EU believes those facts constitute anticompetitive behavior and it levied a
$613 million fine on the company in March 2004.

The two parties have met several times in the more than a year that has
passed since the fine, failing to agree on much of anything except to
disagree.

However, earlier this month, Microsoft claimed
to be coming closer to meeting the EU's requirements for more flexible code.
The EU is still examining the new proposal.

While Microsoft seems to fighting the EU, it has made peace with several
companies in the past year, including a $1.95 billion detente
with Sun Microsystems. Most recently, Microsoft came to
financial terms with Gateway and Burst.com, sewing up old antitrust issues.